Only The Persistent Survive

Although lauded for its lean best practices, Freudenberg-NOK's president and CEO believes that they have to help make their suppliers—and even customers—better if all are to prosper. And he also operates knowing that what may be good today is likely to be insufficient tomorrow, so while continuous improvement is key, innovation is crucial.

Mohsen Sohi is matter of fact. Yes, OEM customers are demanding. There are cost-down pressures that are unrelenting. What's more, he says that there are customers for which providing Six Sigma-levels of quality—and that's 3.4 defects per million parts—is insufficient, so Freudenberg-NOK (FNOK; www.freudenberg-nok.com; Plymouth, MI), the supplier of sealing and NVH products for various applications (e.g., transmissions, brakes, axles, steering, suspension) must provide even more. Sohi, the president and CEO of the firm that was established in 1989 as a joint venture between Freudenberg & Co. (Weinheim, Germany) and NOK Corp. (Tokyo), simply states that in those cases, they provide even better quality. He talks about a customer for which they had been providing literally millions of parts over the years. "On one part we got in trouble," he says. "I spent over $1-million in 2004 to make sure that I had zero escapes because of one part." This is not to imply that he's happy that they had to do that. But he is a realist. There was a problem. FNOK was responsible for fixing it. So they went to work.

Perhaps what is more astonishing than that is that FNOK is willing to spend from $15,000 to $20,000 per person at its customer companies and its supplier companies to train and certify them to become black belts in lean or Six Sigma. That's right. FNOK is providing that level of resource—intellectual property, trainers, and training—for the benefit of its customers and its suppliers. As the company has been a serious practitioner of lean since 1992 (the company is one of the exemplars in the book Lean Thinking by Womack and Jones, and it has conducted more than 16,000 kaizen events) and Six Sigma since 2000, it has its share of street cred when it comes to having those subjects down cold (although Sohi thinks they're only 50% of the way along the journey).

A Good Investment. Is this some sort of corporate charity for other companies? Hardly. Sohi simply states that by making its suppliers better, FNOK benefits. "Suppliers are part of your enterprise," he explains. "If you get defective parts and then have to spend money to catch and correct those defective parts, then it is in your interest to have better suppliers." So the FNOK investment, which they've been making since the summer of 2003, is ideally offset and perhaps even multiplied by improved quality. "To invest in your suppliers is not a bad investment," he states. In working with the suppliers on the training, Sohi says that it is important there is an understanding it is about mutual benefit: "You have to convince them that it is a win-win." He notes, "You have to make sure that they don't see it as a ploy to take some price out of them." Yes, the objective is to improve quality and productivity, but this is a carrot, not a stick. But what about investing in customers? This has two returns. One, Sohi says, is the good will that is generated. The other takes the form of the learnings that FNOK can achieve by working with the customers. (And a third return: if the OEM does better, then its suppliers will, too.)

Appropriate Paranoia. Lean and Six Sigma are essentially about operational excellence, about improving processes. One of the things that FNOK has been working on is to make sure that there aren't two tracks within its organization: Those that do lean and Six Sigma and those who do the actual work. The goal is to make sure that the two are integrated. But references in books about lean and multiple Shingo Prizes for excellence in manufacturing notwithstanding, Sohi doesn't think that process is everything. In fact, Sohi references a motto of Intel co-founder and chairman Andy Grove, "Only the paranoid survive." As Grove writes in the preface of his book with that title, "when it comes to business, I believe in the value of paranoia. Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people's attacks and to inculcate this guardian attitude in the people under his or her management." Sohi says, "I never underestimate our competition. I think they are smart and they are working very hard to catch up to us." He is paranoid. Like Grove.

Essential Innovation. So beyond working process, they are working product. Innovation. "You have to have the operational efficiency," Sohi says, "but you have to have something to make and sell." Something that is better than the other guys can provide. Sohi says that making the investment in innovation is critical, even though it may be hard to do. He acknowledges of the auto supply base, "The price pressure is real. But why are we in the situation we are in?" One answer he gives to his rhetorical question is that there are quality problems. "Quality and profitability go hand-in-hand," he notes. But it is important for there to be product innovation, as well. "If I deliver innovation to my customer, and my customer delivers innovation to the end customer, my customer will not lose market share. They will be successful. So I will be successful." It is a virtuous circle. But it isn't just about being nice. It is about survival.

Sohi spent a considerable amount of time during 2004 visiting companies in Southeast Asia. He visited an FNOK supplier that he describes as being "one-twentieth our size." FNOK is on track for $1.5-billion sales in ‘05. He said that after being given a tour of that supplier's facilities, he called his chief technology officer back in Plymouth from the airport and told him that this smaller company's R&D facilities were better than FNOK's. Speaking of that company and companies like it, he remarks, "These people are good. They are smart. They have access to the same information that you do. If they have discipline and desire, then they will beat you." Unless your discipline and desire are greater.

Beyond the Obvious. He maintains that continual benchmarking is key. People must be out there, finding out what the best companies are doing. But he cautions, that oftentimes people benchmark against two or three other directly competitive companies—only to be blindsided by a company that wasn't even considered. Which calls for healthy paranoia in order to be aware of what's not necessarily obvious.

"The practices that were good enough just a few years ago are not good enough any more. They have to be a lot better," Sohi says. And so they continue to work at it. As good as the organization is, in December ‘04 it was necessary to send the company's executive in charge of its lean program (GROWTTH—Get Rid Of Waste Through Team Harmony) to an FNOK plant (one, Sohi says, came with an acquisition) for a month to work with the people on improving its quality and productivity. "We're not just preaching," he says. A top executive spent a month in a plant working on operational improvement. They're serious.

When I say to Sohi that the FNOK approach—the training for customers and suppliers, the continual benchmarking, the persistent pursuit of operational and product improvements—seems remarkably different than the reactions of the executives of some supplier and OEM firms who decry the situation characterized by people wanting more and better for less sooner (be they end customers or somewhere along the supply chain), Sohi responds, matter-of-factly, "These are the realities. I don't think we see the realities differently. I think we see the approaches differently, not the challenges." And so they work, internally and externally, realizing that if they don't do it every day, then someone else is going to take their business away.